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Li & Fung Plans China Acquisitions on Consumer Demand

Bruce Philip Rockowitz, president of Li & Fung
Bruce Philip Rockowitz, president of Li & Fung (Trading) Ltd. Photographer: Scott Eells/Bloomberg

Li & Fung Ltd., the biggest supplier to Wal-Mart Stores Inc., said it may increase acquisitions in China as the country’s consumer spending grows, U.S. demand rebounds and inflation spurs companies to seek partners.

The Hong Kong-based outsourcer, which has almost $1 billion for acquisitions, may buy Chinese companies in the fashion, cosmetics and furniture industries in the next three years, President Bruce Rockowitz said in an interview today in Hong Kong. It also will increase purchases in the U.S., Europe and Japan, he said.

Retailers are set to “sell out” at Christmas with inventories tight and factories in China booked up, Rockowitz said. China’s exports rose to a record last month, helped by stronger U.S. and European demand, while retail sales grew 19 percent to 1.4 trillion yuan ($210 billion) in October from a year earlier, the Chinese government said.

“We see opportunities in every jurisdiction right now,” Rockowitz said, adding that the company will announce its three-year strategy in March. “We have a huge plan for it.”

Buying China Wholesalers

Li & Fung boosted sales in 17 of the past 18 years, buying rivals and supplying retailers worldwide with Asian-made consumer goods from Tommy Hilfiger clothes and Kate Spade bags to furniture and toys.

The supplier announced purchases worth more than $2 billion in the past year, according to the company and analyst estimates.

Li & Fung completed its HK$7 billion ($901 million) takeover of Hong Kong-based Integrated Distribution Services Group Ltd. in the second half of this year, giving it full ownership of a business that distributes consumer goods and health-care products in eight Asian nations, including China. Last month, the company became a sourcing agent for Chinese sportswear maker Li Ning Co.

“The market will react very well in all these product segments,” said Aaron Fischer, an analyst at CLSA Asia Pacific Markets in Hong Kong. “Li & Fung has a solid track record on signing transactions in growth or complementary segments on attractive terms.”

Li & Fung is interested in buying wholesalers and distributors in China because that “helps our network,” Rockowitz said.

Dominate Middle Class

The supplier plans to target the middle-class market in China because it is underserved compared with the luxury market, Rockowitz said. China’s gross domestic product grew by an average of 10 percent in the past three decades, government economist Zhu Baoliang said in October.

Chinese buyers now account for at least a quarter of European luxury-goods sales, Luca Solca, an analyst at Sanford C. Bernstein in London, said last week.

“The mid-tier, there is no place to buy,” Rockowitz said. “We want to dominate the mid-tier and below.”

Li & Fung plans to bring U.S. and European brands into China that take into account “the aesthetics of China,” he said. “That’s the future,” he said.

Li & Fung also will seek acquisitions in the U.S., Europe and Japan as companies face rising inflation, he said.

“Mild inflation or inflation is not bad for us,” Rockowitz said. “They need a partner. They need someone with a strong network and buying power.”

Li & Fung fell 0.6 percent to close at HK$44.85 in Hong Kong trading today. The stock has risen 39 percent this year compared with a 5.9 percent gain in the benchmark Hang Seng Index.

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